vs. ) CASE NO. 75-2033
Respondent. )
Pursuant to notice, the Division of Administrative Hearings, by its duly designated hearing officer, K. N. Ayers, held a public hearing in the above styled cause at Orlando, Florida on January 29, 1976.
For Petitioner: W. Charles Shuffield, Esquire
For Respondent: Patricia S. Turner, Esquire
By this petition the Sun First National Bank of Orlando seeks review of the assessments made by the Department of Revenue against Petitioner for documentary stamps and penalties allegedly due on certain promissory notes held by Petitioner. The parties stipulated there was no dispute regarding the facts herein involved and these facts are as follows:
Certain borrowers of the Petitioner requested that additional funds be loaned to them by Petitioner. Petitioner agreed to make such additional loans and, in consideration therefor, Petitioner required the execution of new promissory notes for the original amounts previously loaned to said borrowers plus the additional funds advanced to the borrowers. Documentary stamps were fixed to the new promissory notes with respect only to the additional funds loaned, and the original promissory notes were then cancelled and attached to the new promissory notes.
The proposed assessment in connection with this issue is $5,029.30 for documentary stamp taxes and $4,064.20 for penalties.
In consideration of monies advanced by Petitioner to its borrowers, promissory notes were executed by said borrowers at a time when national banks were exempt from state taxation, and thus, no documentary stamps were affixed thereto. Petitioner presently is, and has always been, a national bank. These promissory notes were renewed by Petitioner after national banks were no longer exempt from state taxation (including documentary stamp taxation) and, again, no documentary stamps were affixed to said renewal notes.
The proposed assessment in connection with this issue is $1,037.10 for documentary stamp taxes.
The City of Inverness, Florida, and Orlando Utilities Commission borrowed certain sums from Petitioner. Orlando Utilities Commission is owned and operated by the City of Orlando, Florida. As evidence of its obligation, the City of Inverness executed Water and Sewer Revenue Bonds Anticipation Notes in favor of Petitioner. As evidence of its obligation to Petitioner, Orlando Utilities Commission executed an unsecured promissory note in the principal amount of $3,000,000. No documentary stamps were affixed to either the City of Inverness Anticipation Notes or the Orlando Utilities Commission promissory note.
The proposed assessment in connection with this issue is $5,265.75 for documentary stamp taxes and a similar amount for penalties.
When establishing lines of credit for its customers, Petitioner would use a "master" note in conjunction with its loan agreement. This procedure permitted Petitioner's customer to borrow up to his line of credit without the necessity of executing a promissory note each time he borrowed additional funds. Documentary stamps for the funded portion of the line of credit, rather than for the entire amount of the line of credit, were placed on the "master" note by Petitioner.
The proposed assessment in connection with this issue is $3,672.05 for documentary stamp taxes and $3,672.05 for penalties.
CONCLUSIONS OF LAW
Excise taxes on promissory notes are provided for by Section 201.08
F.S. as follows:
"(1) On promissory notes, nonnegotiable notes, written obligations to pay money, assignment of salaries, wages, or other compensation, made, executed, delivered, sold, transferred, or assigned in this state, and for each renewal of the same on each one hundred dollars of the indebtedness or obligation evidenced thereby, the tax shall be fifteen cents on each one hundred dollars or fraction thereof. Mortgages which incorporate the certificate of indebtedness, not otherwise shown in separate instruments, are subject to the same tax at the same rate". (Emphasis supplied)
Section 201.09 F. S. provides an exemption from documentary stamp taxes for certain renewals of promissory notes as follows:
"When any promissory note is given in renewal of any existing promissory note, which said renewal note only extends or continues the identical contractual obligations of the original promissory note and evidences part or all of the original indebtedness evidenced thereby, not including any accumulated interest thereon and without enlargement in any way of said original contract and obligation, such renewal note shall not be subject to taxation under this chapter if such renewal note has attached to it the original promissory note with canceled stamps affixed thereon showing full payment of the tax due thereon." (Emphasis supplied)
With respect to documentary stamp taxes on renewals of promissory notes the provisions of the above quoted statutes apply. The basic provisions for such taxes are contained in Section 201.08 F. S. which provides that each renewal of [a promissory note] is taxable. Section 201.09 F.S. provides the exception to Section 201.08.
Taxing statutes are strictly construed. State ex rel. Wineberg v. Green 132 So.2d 761 (1961). If doubt exists regarding liability of instrument to taxation, construction is in favor of exemption, since tax cannot be imposed without clear and expressed words. Lee v. Quincy State Bank 137 So. 909 (1937). Where the language of the statute clearly limits its application to a particular class of cases, leaving no room for doubt as to the intention of the legislature, the statute may not be enlarged or expanded to cover cases not falling within its provisions. 73 Am Jur 2d STAT. Section 198.
Here the statutory provisions are clear that extensions of promissory notes are taxable unless they fall within the exemptions of Section 201.09. Since taxing statutes, like penal statutes, are strictly construed, it follows that extensions of promissory notes must not enlarge in any way the original contract and obligation. Here the notes were extended and enlarged by increasing the amount of the original obligation to pay.
Petitioner contends that had the bank issued a new note in the amount of the new money loaned it would have paid excise taxes only on that amount and thereafter could have renewed both the original note and the supplemental note with one renewal note which would have been exempt from tax pursuant to Section
201.09 F.S. In response to a similar contention in North American Company v. Green, 120 So.2d 603, the Supreme Court said:
"We are not privileged to make the taxability of a transaction dependent upon any considera- tion of some alternative procedure which
might not have been taxable."
It is concluded that these renewal notes do not comply with the requisites for exemption from taxation and are subject to the stamp taxes as provided in Section 201.08.
With respect to extensions of those promissory notes executed when the notes were exempt from taxation by reason of Petitioner's status as a national bank, the same statutes above quoted are applicable and the same rules of statutory construction apply. In order for these renewal notes to be exempt from taxation pursuant to Section 201.09, F.S. they must meet all the requirements of that section. One of these requirements is that the renewal note [to be exempt from taxation] "have attached to it the original promissory note with cancelled stamps affixed thereon showing full payment of the tax due thereon." Since documentary stamp taxes were never paid on these original notes they can hardly have cancelled stamps affixed thereon. Had the legislature intended to exempt these notes from taxation when, and if, renewed, provision for such exemption could easily have been made. Absence such provision on the part of the legislature, renewal notes replacing these tax exempt notes are subject to the documentary stamp tax provided by Section 201.08 P.S.
With respect to the unsecured note received from the Orlando Utilities Commission the provision of Section 201.01 F.S. must be considered. Petitioner contends that these notes are exempt from taxation by virtue of the governmental status of the maker. It is stipulated that Orlando Utilities Commission is owned and operated by the City of Orlando. It would therefore enjoy immunities possessed by the City.
Section 201.01 F.S. provides in Pertinent part:
"There shall be levied and paid the taxes specified in this chapter . . . by any person who makes, signs, executes, sells, removes, consigns, or ships the same, or for whose benefit or use the same are made, signed, executed, issued, sold, removed,
consigned, assigned, or shipped in the state."
Although the statute makes no reference to any sovereign exemption the statute is not broad enough to waive the implied immunity of the state or its agencies from taxation. 1944 Op. Atty. Gen. 225. The sovereign immunity principle was applied in State ex rel. Seaboard Airline R. Co. v. Green, 173 So.2d 129 (1965) where it was held that the document stamp tax could not be imposed by the state on deeds executed and delivered by agency of federal government and grantee was entitled to have deeds recorded without payment of the tax.
With respect to notes the documentary stamp tax is an excise tax on the promise to pay. Plymouth Citrus Growers Assn. v. Lee, 27 So.2d 415 (1946). By the terms of the statute it is imposed upon the maker. With respect to deeds, the maker is the grantor. It is elementary that the grantor who deeds property to a buyer must deliver a deed that can be recorded. Hence the obligation upon the seller to pay for the documentary stamps required on a deed before it can be recorded in Florida. In the Seaboard Airline case the maker of the deed was the U.S. Government and the court held that since it was exempt from taxation by the state, the Clerk of the Court must record the deed without documentary stemps affixed thereto.
Respondent contends that the Seaboard Airline case should be limited to the facts therein involved, since other cases have held that the nongovernmental party involved in loans from the United States is liable for the taxes. Choctawatchee Elec. Coop. Inc. v. Green, (App.) 123 So.2d 357 (1960) cert. den. 132 So.2d 556, cert. den. 369 US 829. Respondent further contends
that the exemption should be limited to the United States and not extended to a municipality even though a municipality is exempt from taxation pursuant to Chapter 201 Florida Statutes.
It is submitted that this contention misses the rationale behind the sovereign exemption. The issue of primacy is not involved. Municipalities are exempt from state taxes the same as is the federal government.
The maker of the note here in question is the Orlando Utilities Commission. This is the entity for whose benefit a person or persons executed the note. The note was not made for the "use and benefit" of the Petitioner but only to present to Petitioner as evidence of the obligation of the maker of the note to repay the sum borrowed. If the maker of the note is exempt from state taxation it follows that the Respondent may not require the Petitioner to pay the excise tax that the statute provides is the liability of the maker. To hold otherwise would result in requiring otherwise tax exempt agencies to pay excise taxes. By virtue of their tax exempt status municipalities borrow money at lower interest rates than do others whose interest payments on bonds are subject to income tax. If excise taxes are collectible from the lender on loans made to municipalities the lender will obviously raise the interest rate charged to recover the tax and thereby pass it on to the municipality in order to receive the net return he requires for making the loan.
The final documentary stamp tax issue involved relates to those "master notes" executed by the borrower to establish a line of credit. While no copy of such a note was presented, the stipulation of facts indicates that the borrower signed a promissory note to pay the full amount the lender agreed to lend. The borrower would then "draw" on this note as funds were needed up to the full amount of the note. At any one time the borrower would owe only the amount he had actually borrowed and not repaid. This too would be the sum on which the borrower paid interest.
Payment of excise taxes on these "master notes" is governed by the provision of Section 201.08 F.S. above quoted. The taxability of a document under this statute is determined solely by the form and face of the instrument and cannot be affected by proof of extrinsic facts. Bankers Trust Company v. Florida East Coast Railway Company 8 F. Supp. 874 (DC 1935), aff'd. Lee v. Kenan
78 F 2d 425, cert. den. 296 U.S. 637. Where the maker executes a promissory note to pay the lender the total sum the lender has agreed to lend this is the sum appearing on the face of the instrument and determines the amount of the documentary stamp tax owed. Although the borrower may never, at any one time, have borrowed the total sum contained in the master note, he may have borrowed and repaid a lesser sum numerous times without having to execute promissory notes and pay documentary stamp taxes thereon. While the Petitioner could have the borrower execute a note and pay excise tax thereon each time he draws on the total sum the Petitioner has agreed to lend, it has not chosen to do so and the courts are not privileged to make the taxability of a transaction depend upon considering an alternate procedure which might not have been taxable. North American Co. v. Green, supra.
From the foregoing it is concluded that the assessment for documentary stamp taxes are correct for renewing promissory notes which include additional sums, for renewal of promissory notes issued when the Petitioner was exempt, and for the face amount of the master notes used to secure a line of credit. It is further concluded that the promissory note made by the Orlando Utilities Commission is exempt from payment of the documentary stamp taxes and the assessment against Petitioner therefor is invalid. It is therefore
RECOMMENDED that the assessments made with respect to Items 1, 2, and 4 on the Stipulation of Facts be collected and the assessment made with respect to Item 3 on said stipulation be dismissed.
DONE and ENTERED this 28th day of April, 1976 in Tallahassee, Florida.
K. N. AYERS Hearing Officer
Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida
